Ever since Rachel Reeves’ released her Budget, there has been major concerns if people’s pensions are going to be okay. So much so that one finanicial services has spoken out about two major mistakes people may have made before the potential changes, that could cost them thousands in retirement.
Ms Reeves insists a Canadian-style overhaul of British pensions will help put a flame under the faltering British economy. She says that her plans for pension “megafunds” will help unlock billions of pounds of investment in businesses and infrastructure.
Her shake-up will consolidate defined contribution (DC) schemes and pool assets from 86 local government pension scheme authorities. The Local Government Pension Scheme in England and Wales will manage assets worth around £500 billion by 2030.
These assets are currently split across 86 different administering authorities, with local government officials and councillors managing each fund.
In response to the Budget, finanicial firm Annuity Ready has shared two moves those with savings before the announcement that could blow up in their faces. So now they’re warning others thinking about putting some cash away not to make the same mistake.
Research by the website found that people acted due to media speculation about what pension changes might be implemented in the Budget. The Sun reports that the firm found 29 per cent of those it surveyed withdrew money from their retirement pot earlier than planned, while a further two in 10 reduced their pension contributions.
The research also found 75 per cent of their study volunteers would not have taken those actions had they known what would actually end up being in the Budget.
Sarah Lloyd, director at Annuity Ready, said: “Our findings paint a worrying picture of how people can feel prompted to make significant decisions about their retirement savings in the face of uncertainty.
“What’s concerning is that these aren’t just small changes – we’re seeing people withdraw money early or reduce their pension contributions based on speculation rather than facts, which has real-world consequences.”
The report shows that 38 per cent of people who had made chanegs to their pensions said that they did it because the government decided to means-test the Winter Fuel Payment, and they were concerned about the potential knock-on effect this could have on their finances. Additionally, just 29 per cent said they trusted the stability of the current penision policies more following the Autumn budget.
Sarah said people didn’t understand how government changes would impact their pensions. She said: “This creates a perfect storm where rushed decisions are made from a place of anxiety rather than informed choice.”
In order to avoid devaluing your pensions, it is reccomended not to withdraw cash from it. It might seem like a good idea at the time but it’s no good for you in the long run.
Money left in pension pots is invested on your behalf with the aim of growing it over time as investments often go up in the long-term. Therefore your money benefits from compound interest.
This means that any returns are then reinvested – expected to make it bigger and bigger. So if you take money out of it, you won’t benefit as much from compound interest.
You may also be subject to income tax.
If you did do this, try not to worry, if you took cash out before the Budget you may be able to reverse the decision if you do it within 30 days. Check with your pension firm to see if they offer this option.
If you reduced your contributions, again you may have more money in your pocket in the short term but it wil make your final total smaller. You’ll benefit less from compound interest AND your employed may reduce their contributions too.
Something about throwing money away to be said there.
